CALCUTTA, India, Feb. 28 (UPI) -- Having already announced much of his reforms and a couple of ground-breaking policies in the few weeks of the run up to the budget, India's finance minister P Chidambaram launched a direct assault on poverty and unemployment when he unveiled the country's formal 2005-06 Budget Monday.
The central theme of this annual exercise of presenting the country's fiscal positions and stating the government's economic policies for the coming year is in line with Common Minimum Program (CMP): that of helping the common man of the country's a billion-plus population.
"India is not a poor country. Yet a significant number of our people are poor," Chidambaram told the parliament. "The whole purpose of democratic government is to eliminate poverty and to give to every citizen the opportunity to be educated, to learn a skill and to be gainfully employed."
Despite 15 years of efforts since India started opening up its economy to global forces to improve the lives of its people, over 260 million Indians still live below the poverty line and two-thirds of its billion people depend solely on farming for their livelihood.
The CMP, a political doctrine crafted by the Congress Party-led United Progressive Alliance government elected in May last year, with significant support of Left parties, mandated that this government addresses the needs of the poor.
This budget thus, went easy on fiscal prudence especially to appease the leftist allies, and dwelt extensively on job creation, rural improvement, and lifting the social sector that would cost the exchequer $5.7 billion in 2005-06. The minister also suspended attempts to reduce the government's fiscal deficit, which he said would hit 4.5 percent of gross domestic product (GDP) in this fiscal year. A fiscal discipline law passed last year stipulated that the deficit must fall by 0.3 of a percentage point of GDP each year, but Chidambaram announced that the 2005-06 targets was 4.3 percent
"I was left with no option but to press the pause button vis-a-vis the [fiscal responsibility] act," he said. "I may add that we are perilously close to the limits of fiscal prudence and there is no more room for spending beyond our means."
However, the finance minister also said that the $600 billion Indian economy could grow by 6.9 percent in 2004-05 and pegged industrial growth at 8.9 percent in 2005-06, with inflation at about 5 percent.
The budget also announced plans of boosting job generation in sectors such as IT and textiles, and an ambitious plan to develop Bangalore's Indian Institute of Science in the lines of Oxford and Harvard, and convert Mumbai into a major global financial hub.
However, of the poor and Left parties appeasing announcements, a measure that stood out particularly is a plan called "Bharat Nirman" (literally building India), which is a comprehensive project of improving connectivity, phone links, electrification and irrigation facilities in rural India.
This scheme aims at bringing an additional 10 million hectares of farm lands under assured irrigation, connecting all villages that have a population of 1000 people with a road, constructing 6 million homes for the poor, and providing drinking water and electricity to the remaining 1,25,000 villages. It also aims at offering electricity connection to 230 million families in urban India and providing telephonic connectivity to 66822 villages.
The budget reaffirmed the government's previously announced policies on ramping up the country's infrastructure and proposed to use a small part- about $2.2 billion- of India's $133 billion in foreign exchange reserves to develop roads, ports, airports and tourism. A new tax has been imposed as well on gas to improve infrastructure and broaden health, insurance and education schemes.
The budget also initiated sweeping direct and indirect tax reforms and hinted that the country could seek more foreign direct investments to sustain its scorching economic growth ambitions.
For instance Chidambaram indicated that FDI in the pension, mining and trade sectors would be liberalized over and above the earlier-announced measures like hiking foreign-fund holdings' limit in state-run banks to 24 percent from 20 percent.
On indirect taxes, Chidambaram announced his goal of making the customs duty structure closer to that of India's East Asian neighbors. He, therefore, slashed the customs duties on selected capital goods and parts thereof to below 15 percent, and to 10 percent in some case, and to 5 percent in some others.
A reduction of the peak import duty rate for non-agricultural products from 20 percent to 15 percent was proposed as well. To cash on the potential of textile and food processing industries, the minister proposed a reduction of customs duty on textile machinery, and reduced duty on refrigerated vans from 20 percent to 10 percent.
"This", Chidambaram said, "would help these industries to acquire a competitive edge in the post-quota regime."
In the area of personal income tax, Chidambaram announced a large measure of relief to middle class income tax payers by proposing to alter the tax brackets as part of the major overhaul of direct taxes. Additionally, recognizing the necessity of encouraging savings through tax relief as an inducement to save, Chidambaram allowed a taxpayer greater flexibility in making savings/investment decisions.
For corporate tax payers, Chidambaram has proposed a tax structure under which the corporate income tax rate for domestic companies will be 30 percent plus a surcharge of 10 percent. And, along with the depreciation rate for general machinery and plant that was hiked to an initial 20 percent (but 15 percent thereafter), the minister said that this will give the corporate sector a nearly 3 percent relief in tax rate and will ensure equity among all sections of corporate tax payers besides encouraging new investments.
These are some of the reasons the stock markets greeted the new federal budget with a bang and hit all-time high amid sustained buying interest. After touching an all-time high of 6721.08 points right after the announcement of the budget, the benchmark index, BSE Sensex ended at an all-time high of 6,713.86, a gain of 144.14 points
The mood on the market appeared optimistic as investors cheered the government's announcements on infrastructure development and more reforms oriented projects. Banking, construction, textile, oil and sugar stocks were in the limelight.
